Supply Chain Investments Drive Cost Reductions
During its November 26 earnings call, Burlington announced a 50-basis-point reduction in product procurement costs (including handling and purchasing expenses) as a percentage of sales for the third quarter. This substantial cost reduction primarily resulted from strategic investments in distribution centers (DCs) and other supply chain optimization initiatives. Additionally, the company's freight expenses decreased by 20 basis points during the quarter, further solidifying its cost control achievements.
"We anticipate the product procurement cost leverage for full-year 2024 will improve by approximately 50 basis points versus last year. As a result, we've now achieved half of our five-year 100-basis-point goal," said Executive Vice President and Chief Financial Officer Kristin Wolfe during the conference call.
This statement underscores Burlington's confidence in future cost control and its commitment to steadily achieving strategic objectives.
Store Expansion and Supply Chain Modernization
As Burlington continues to grow its store count, the retailer is actively leveraging supply chain upgrades to reduce costs and ensure efficient, timely merchandise delivery to all locations. Wolfe told analysts the company expects capital expenditures to represent about 7% of sales this year and in 2025. This slightly elevated ratio compared to historical levels primarily supports new store openings and distribution center investments.
This investment strategy indicates Burlington's commitment to strengthening supply chain infrastructure to support business expansion and establish a foundation for future growth.
Ownership of Distribution Centers: Enhancing Control and Efficiency
Regarding distribution centers, Burlington is focusing on ownership rather than leasing. Wolfe added: "This will allow us to design these facilities to support the flexibility and efficiency required by our off-price model." Owning distribution centers enables Burlington to better control operations and customize facilities according to its specific needs, thereby improving efficiency and reducing costs.
This strategic shift reflects Burlington's emphasis on supply chain autonomy and its consideration of long-term operational cost control. The company announced in March plans to open a 2-million-square-foot distribution center in Savannah, Georgia, by 2026. Wolfe recently told analysts the company intends to own this facility and might "explore opportunities" to acquire other currently leased properties.
As of February, Burlington owned just two of its twelve primary distribution and warehouse facilities. Increasing ownership of distribution centers will help the company better manage its supply chain and reduce long-term operating costs.
Automation Investments: Boosting Productivity and Reducing Labor Costs
Beyond owning more distribution centers, Burlington plans continued investment in facility automation to enhance productivity. "We're redesigning how merchandise flows through DCs, automating selection processes, ultimately reducing touch points and handling time for merchandise, and saving on DC labor costs," Wolfe explained.
By implementing automation technology, Burlington can improve operational efficiency, reduce labor costs, and accelerate merchandise delivery to stores. This proactive embrace of automation demonstrates the company's deep understanding of how technological innovation drives efficiency.
Following the Savannah facility's opening, the company plans further supply chain modernization through larger, more automated distribution centers post-2028. The new distribution center presents an opportunity to design facilities with greater automation tailored to Burlington's off-price retail model, suggesting future DCs will become more intelligent and better aligned with the company's needs.
Analyzing Burlington's Supply Chain Strategy
A closer examination of Burlington's supply chain strategy reveals specific initiatives in automation, inventory management, and supplier collaboration.
Automation: Burlington's automation investments span all DC operations. The company has implemented automated sorting systems to improve merchandise sorting efficiency and accuracy. These systems quickly and precisely direct goods to appropriate destinations, reducing manual intervention. The retailer also employs robotics for repetitive tasks like moving, packing, and palletizing, freeing human resources for more creative, judgment-based work while improving workplace conditions.
Inventory Management: Burlington optimizes inventory management using advanced predictive analytics tools that examine historical sales data, market trends, seasonal factors, and promotional activities to forecast demand accurately. This prevents both overstocking and stockouts—the former ties up capital and increases storage costs, while the latter leads to lost sales and customer dissatisfaction. The company also maintains safety stock levels based on product characteristics and supply chain reliability.
Supplier Collaboration: Burlington strengthens supply chain efficiency through closer supplier partnerships. By sharing information, jointly planning, and making collaborative decisions, the company better coordinates production and transportation, shortening lead times and cutting costs. These relationships also help Burlington respond swiftly to market changes and adjust product offerings accordingly.
Strategic Advantage Through Supply Chain
Burlington's supply chain strategy represents more than a logistical process—it serves as a source of competitive advantage. Through continuous investment and optimization, the retailer achieves cost reduction, efficiency gains, and customer satisfaction improvements that drive sustainable growth.
For investors, this strategy signals Burlington's commitment to long-term growth potential. The company's efficient, flexible supply chain reduces costs, enhances profitability, and better meets customer demands. Burlington's experience offers valuable lessons for other retailers about elevating supply chain management to strategic importance in today's rapidly evolving business environment.
Looking ahead, Burlington will continue refining its supply chain while exploring new methods to boost efficiency and cut costs. Planned investments in artificial intelligence, machine learning, and the Internet of Things will create smarter supply chain management. Strengthened supplier partnerships will increase supply chain resilience against disruptions. By maintaining its innovative spirit and continuously improving its supply chain strategy, Burlington aims to sustain its competitive edge in the challenging retail market.